Right-size KQ to survive turbulence

If you asked me to give you the main reason Kenya Airways has remained in financial doldrums for a whole seven years, I will answer without thinking: inability by the main shareholder — namely, the government — to face up to the scale of the company’s problems and unwillingness to take hard decisions.

In the face of the Covid-19 pandemic, airlines world over have been busy rightsizing their businesses by reducing fleet sizes, grounding planes, cutting unprofitable routes and executing massive staff lay-off.

I recently read somewhere that Emirates fired 800 pilots in a single day while British Airways recently sacked 350 pilots and put another 300 in a pool for rehire. Air France is said to be planning to lay off 7,600.

When an airline is forced by circumstances to reduce its fleet size, ground its planes and close unprofitable routes, staff lay-offs become inevitable.

It seems to me that one of the reasons Kenya Airways has been in financial trouble for a long time is because its management does not have the flexibility to respond appropriately and urgently to situations that come up abruptly such as the case of the Covid-19 pandemic.

In the wake of the pandemic, the company conducted a comprehensive evaluation of its assets, network and staff to determine what needed to be cut and brought in line with a drastic reduction of the business.

From an internal document I recently came across, that evaluation came to the conclusion that the business had to be rightsized on multiple fronts, including massive staff lay-off.

Scaling down the operations will be the easy part. Yet when it comes to shedding jobs, the company will need public support and to secure political will.

The scaling down proposal has a formidable enemy in the pilots union. Just how disruptive the union came to the fore in October 2016 when union leaders mobilised members to a strike where they demanded the exit of former CEO Mbuvi Ngunze, and ex-chairman of the board, Dennis Awori.

Initially, Transport Cabinet Secretary James Macharia insisted that he would not sit at a table with the leaders of the pilots’ union to discuss the removal of the chairman and the CEO.

But at the end of the day, the minister was forced to eat humble pie. That episode served to illustrate the political clout of leaders of the pilots union and the links and influence they wield in the corridors of power. Mr Ngunze and Mr Awori were replaced. What is my point? It is that despite the fact that the proposal to scale down the operations of Kenya Airways has now become an imperative, it should not surprise if we see strident opposition especially coming from the pilots union. Indeed, the unions have already rushed to the High Court over the matter. Yet the prevailing circumstances present existential conditions for the airline. Consider the following numbers.

Before the onset of Covid-19, the company was posting revenue of approximately $20 million per week. Revenues dwindled to $3 million per week in the following months. The overheads remained largely intact with salaries and allowances amounting to Sh1.2 billion per month.

To conserve cash, Kenya Airways has had to resort to austerity measures, including suspending creditor payments, reduced staff salaries, negotiation of aircraft lease moratoriums as well as aircraft loan repayment terms.

The company has announced that it will shortly be resuming operations. Yet all the indications are that demand for air travel will remain depressed for a very protracted period.

Indeed the projections are that demand will be at around 50 per cent of the prevailing levels during the pre-Corvid 19 period for a long time. There is an urgent need to bring liquidity to Kenya Airways to avoid a disruption in operations and avoid the risk of triggering the sovereign guarantees which the government gave out to the company’s lenders. A scaling down of all operations including shedding of jobs are an imperative.